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Libor Scandal: UBS Plays the “Most Dangerous Game”

Posted by Larry Doyle on August 9, 2012 9:00 AM |

“You want loyalty? Get a dog.”

Wall Street management was notorious for playing the loyalty card with employees when they were preparing to screw them during bonus season. I am going to guess that those loyalty conversations do not carry much weight anymore. Certainly not at UBS.

In what I would define as the financial equivalent of the classic story, “The Most Dangerous Game“, the intrigue currently within the offices at Union Bank of Switzerland redefines the Wall Street employer-employee relationship. Let’s navigate into this unknown and uncharted territory. 

The Wall Street Journal highlights, Ex-UBS Traders Offered Deal by U.S. in Rate Probe:

U.S. prosecutors have agreed to shield several former UBS AG employees from criminal charges in return for their cooperation with the escalating investigation of suspected interest-rate manipulation, according to a person close to the probe.

The leniency deal was offered to former traders and other employees who had relatively junior-level jobs at the Swiss bank, the person said.

No more than a few of the UBS employees under investigation for alleged interest-rate manipulation still work there, and the company has fired or suspended about 20 traders and managers as a result of the four-year inquiry, another person familiar with the investigation said.

Despite the fact that the article references that deals have been struck with former UBS employees, can you imagine the water cooler chat within UBS as current employees wonder who in the organization might be working for the hunter and who is the hunted?

Can you further imagine selected employees wondering whom they can trust and what they might say not knowing how the information might be used? I can only think that some employees may want to have their lawyer present or on call when approached for a conversation.

What makes this situation even more challenging and unsettling for both past and current employees? The fact that UBS has already negotiated an institutional settlement with selected departments and regulators.  Do you think those settlements might protect the senior executives within the organization? As the WSJ highlights:

UBS itself has disclosed in regulatory filings that it secured leniency deals with the Justice Department’s Antitrust Division and competition regulators in Switzerland and Canada.

How does any leniency deal occur in light of the fact that,

. . . the company has fired or suspended about 20 traders and managers as a result of the four-year inquiry, another person familiar with the investigation said.

If 20 traders and selected managers at UBS have been fired for their involvement in the largest financial scandal EVER, are we supposed to believe that the most senior executives within the institution were not aware — or failed to supervise and should have been aware — of the manipulation as it occurred over many years? To accept that premise would take naivete to the extreme. Yet the institution is allowed a leniency deal and assuredly a fine as the rank and file “get hunted.”

How might we ever know if those currently being hunted were not merely following orders from senior management? Especially if the senior management is afforded the institutional protection embedded in the leniency deal?

This smells of crony capitalism at its absolute worst. Who is one of President Obama’s closest relationships on Wall Street? The recently departed former UBS senior executive Robert Wolf. As expressed just yesterday by Elliott Management and delivered at the widely read blog Zero Hedge:

Opaque, overleveraged and vulnerable Financial Institutions which need to be propped up by the implicit or explicit guarantee of sovereigns does not make for a solid financial plumbing system for the global economy… this is a formula for power entrenchment, favoritism and shady deals behind closed doors.

The government, lacking deep understanding of these firms, wants to pretend that their gigantic efforts (most notably Dodd-Frank) actually fixed the situation. But we believe that citizens are angry at what their guts tell them (correctly, basically) about the special treatment and riskiness of Financial Institutions.

Welcome to UBS and welcome to Wall Street.

I think I will go take a shower.

Related Sense on Cents Commentary

Libor Scandal: Trader Highlights  Manipulation in 1991
Barclays Libor Scandal: Naming Names
Barclays Libor Scandal: Wake Up, America!!
Barclays Libor Scandal: The Complicit Regulators
Barclays Libor Scandal: The Precedent
Barclays Libor Scandal: Holding Regulators to Account
Barclays Libor Scandal: “Diamond Lied”
Barclays Libor Scandal: Who’s Really to Blame? 
Barclays Libor Scandal: When Did Manipulation Start?
Barclays Libor Scandal: How Big Will This Get?
Barclays Libor Scandal: Reports Regulators Knew; Time for Independent Investigation and Eliot Spitzer
Barclays Libor “Price Fixing”: Collusion Is Illegal. . .
Barclays Libor Scandal: Prison Will Remedy

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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